The single most common question from salaried professionals filing their return is: should I choose the new tax regime or stick with the old one? The answer depends on your specific income level, the deductions you can claim, and whether you have investments in 80C instruments, pay rent, or service a home loan.
This guide compares both regimes for FY 2024-25, lists what you lose and keep under each, and gives you a practical framework to decide.
Key Takeaways
- New regime is the default from FY 2023-24 onward; you must opt in for old regime
- Budget 2024 raised the standard deduction under the new regime to ₹75,000
- Budget 2024 also widened new-regime slabs — the 5% slab now covers ₹3–7 lakh (up from ₹3–6 lakh)
- Section 87A rebate means zero tax for income up to ₹7 lakh under the new regime
- Under old regime, deductions under 80C, 80D, HRA, and home loan interest can significantly reduce taxable income
- There is no single answer — run the numbers for your specific salary and deductions
What Changed: Budget 2023 and Budget 2024
The new tax regime was introduced in Finance Act 2020 as an option. Budget 2023 made it the default regime and restructured the slabs. Budget 2024 made the new regime more attractive by:
- Raising the standard deduction from ₹50,000 to ₹75,000 for salaried individuals
- Introducing a ₹25,000 deduction for family pension recipients
- Widening the 5% slab from ₹3–6 lakh to ₹3–7 lakh
- Adjusting the 10% slab from ₹6–9 lakh to ₹7–10 lakh
These changes reduced the tax liability under the new regime, particularly for those with income between ₹7 lakh and ₹10 lakh.
Tax Slab Comparison: New vs Old Regime
New Tax Regime — FY 2024-25 (Default)
| Income Range | Tax Rate |
|---|---|
| Up to ₹3,00,000 | NIL |
| ₹3,00,001 – ₹7,00,000 | 5% |
| ₹7,00,001 – ₹10,00,000 | 10% |
| ₹10,00,001 – ₹12,00,000 | 15% |
| ₹12,00,001 – ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
- Standard deduction: ₹75,000 for salaried employees
- Section 87A rebate: Full rebate (up to ₹25,000) if taxable income ≤ ₹7 lakh → zero tax payable
- Maximum surcharge: 25% (capped at 25% even for income above ₹5 crore — a benefit over old regime)
Old Tax Regime — FY 2024-25
| Income Range | Tax Rate |
|---|---|
| Up to ₹2,50,000 | NIL |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
- Standard deduction: ₹50,000 for salaried employees
- Section 87A rebate: Full rebate if taxable income ≤ ₹5 lakh → zero tax payable
- Senior citizen benefit: Basic exemption of ₹3 lakh (60–80 years); ₹5 lakh (above 80 years)
Health and Education Cess: 4% on total income tax applies under both regimes.
What You Give Up Under the New Regime
The new regime offers lower slab rates in exchange for forgoing most exemptions and deductions. Here are the key ones you lose:
| Deduction / Exemption | Limit Under Old Regime | Available in New Regime? |
|---|---|---|
| Section 80C (PPF, ELSS, LIC, EPF, home loan principal, tuition) | ₹1,50,000 | No |
| Section 80D (health insurance premium) | ₹25,000–₹1,00,000 | No |
| HRA exemption (Section 10(13A)) | Actual HRA or formula, whichever is lower | No |
| LTA (Leave Travel Allowance) | Actual travel cost, twice in 4-year block | No |
| Home loan interest — self-occupied (Section 24b) | Up to ₹2,00,000 | No |
| Section 80TTA (savings account interest) | ₹10,000 | No |
| Section 80TTB (senior citizen interest income) | ₹50,000 | No |
| NPS additional deduction — Section 80CCD(1B) | ₹50,000 | No |
| Standard deduction (salaried) | ₹50,000 | Yes — ₹75,000 |
| Employer NPS contribution — Section 80CCD(2) | Up to 10% of basic salary | Yes |
What You Keep Under the New Regime
Even under the new regime, a few items remain available:
- Standard deduction of ₹75,000 (from FY 2024-25)
- Employer's contribution to NPS under Section 80CCD(2) — up to 10% of basic salary (for private sector) or 14% (for central government employees)
- Gratuity and leave encashment exemptions remain
- Transport allowance for employees with disabilities
- Section 10 exemptions on agriculture income and certain government allowances
- HUF-specific exemptions for notified areas
Practical Comparison: Who Benefits from Which Regime?
Scenario 1: ₹8 Lakh Gross Salary
Assume: Standard deduction ₹75,000, no other deductions claimed.
| New Regime | Old Regime | |
|---|---|---|
| Gross salary | ₹8,00,000 | ₹8,00,000 |
| Standard deduction | (₹75,000) | (₹50,000) |
| Taxable income | ₹7,25,000 | ₹7,50,000 |
| Tax on slab | ₹37,500 (5% on 4L, 10% on 25K) | ₹62,500 (5% on 2.5L, 20% on 2.5L) |
| Section 87A rebate | Nil (income > ₹7L) | Full rebate (if ≤ ₹5L — not here) |
| Cess (4%) | ₹1,500 | ₹2,500 |
| Total tax | ₹39,000 | ₹65,000 |
New regime saves approximately ₹26,000 — if no deductions are available under the old regime.
Now add ₹1,50,000 in 80C claims and ₹20,000 in health insurance premium:
Under old regime, taxable income reduces to ₹5,80,000 → tax is approximately ₹6,500 (5% on ₹3.3L minus rebate).
In this case, the old regime is significantly better, because the taxpayer can claim ₹1,70,000 in deductions.
Scenario 2: ₹12 Lakh Gross Salary
| New Regime | Old Regime (with max deductions) | |
|---|---|---|
| Gross salary | ₹12,00,000 | ₹12,00,000 |
| Standard deduction | (₹75,000) | (₹50,000) |
| 80C deduction | — | (₹1,50,000) |
| 80D deduction | — | (₹25,000) |
| HRA exemption (assumed) | — | (₹1,20,000) |
| Taxable income | ₹11,25,000 | ₹8,55,000 |
| Tax (approx.) | ₹1,21,875 + cess | ₹1,04,000 + cess |
| Approx. total tax | ≈ ₹1,26,750 | ≈ ₹1,08,160 |
With significant deductions, the old regime is better at ₹12 lakh. Without meaningful deductions (no HRA, no 80C), the new regime wins.
The Break-Even Rule of Thumb
As a general approximation — not a substitute for an actual computation:
- If your total deductions and exemptions (80C + 80D + HRA + home loan interest + others) exceed approximately ₹3.75 lakh at a ₹15 lakh salary level, the old regime is likely better.
- If you have few or no deductions (rented-in-employer-accommodation, no insurance, no home loan), the new regime almost always results in lower tax.
- For incomes above ₹15 lakh, the 30% top rate is the same under both regimes — deductions matter more at higher incomes.
These are approximate break-even points. The actual calculation depends on your exact figures. Our income tax filing service can run the computation on your actual numbers before you finalise your regime choice.
How to Switch to the Old Regime
For salaried employees:
- Inform your employer at the start of the financial year (April). The employer deducts TDS based on your chosen regime.
- Even if you did not inform the employer (TDS deducted under new regime), you can claim the old regime when filing your ITR — any excess TDS will be refunded.
For individuals with business income:
- You must file Form 10-IEA before the due date of ITR to opt for the old regime.
- Once you switch away from the new regime as a business owner, you lose the option to switch back.
Special Considerations
Senior Citizens (Age 60–80)
Under the old regime, basic exemption is ₹3 lakh (vs ₹2.5 lakh for others). Section 80TTB allows up to ₹50,000 deduction on interest income from banks and post offices. These benefits are not available under the new regime, making the old regime more attractive for many senior citizens.
High-Income Earners (Above ₹5 Crore)
The new regime caps surcharge at 25%. Under the old regime, the surcharge on income above ₹5 crore is 37%, making the new regime significantly more beneficial for very high earners.
NPS Subscribers
Section 80CCD(2) — the employer's NPS contribution — is available under both regimes. If your employer contributes to NPS and you are on the new regime, you still benefit from this deduction. The additional ₹50,000 under 80CCD(1B) is only for the old regime.
Which Regime Should You Choose?
Run through this checklist:
- Do you pay significant rent and receive HRA from employer? +Old regime
- Do you claim ₹1.5 lakh or more under 80C annually? +Old regime
- Do you pay home loan EMIs with substantial interest? +Old regime
- Do you have few deductions (company accommodation, low insurance)? +New regime
- Is your income below ₹7 lakh (after standard deduction)? +New regime (zero tax with 87A rebate)
- Is your income above ₹5 crore? +New regime (surcharge cap at 25%)
For a definitive answer, run the actual numbers under both regimes using the income tax portal's tax calculator or speak to a CA who can model both scenarios on your specific figures.
Understanding your regime choice also affects TDS on salary — inform your employer early so TDS is deducted correctly and you avoid large year-end adjustments.
This article is for general informational purposes only and does not constitute professional advice. Tax laws, slab rates, and deduction limits are subject to change based on budget announcements. Consult a qualified Chartered Accountant for advice specific to your situation.
Frequently Asked Questions
Which is the default tax regime for FY 2024-25?
The new tax regime is the default for FY 2024-25. If you want to opt for the old regime, you must explicitly do so while filing your ITR. Salaried employees can also inform their employer at the start of the financial year to have TDS deducted under the old regime.
Can I switch between new and old regime every year?
Individuals with only salary and other non-business income can switch between the two regimes every financial year. However, if you have business or professional income, you can switch to the old regime only once and after that you cannot go back to the new regime.
Is HRA available under the new tax regime?
No. House Rent Allowance (HRA) exemption under Section 10(13A) is not available under the new tax regime. If you pay significant rent and have substantial HRA from your employer, the old regime may be more beneficial.
What deductions are still available under the new regime?
Under the new regime, very few deductions are available. The key ones include: standard deduction of ₹75,000 for salaried individuals (from FY 2024-25), employer's NPS contribution deduction under Section 80CCD(2), and transport allowance for persons with disabilities.
What is the basic exemption limit under both regimes for FY 2024-25?
Under the new regime, income up to ₹3 lakh is exempt from tax. With the Section 87A rebate, effectively nil tax is payable up to ₹7 lakh. Under the old regime, income up to ₹2.5 lakh is exempt (₹3 lakh for senior citizens aged 60–80; ₹5 lakh for super senior citizens above 80).